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Published: Fri, 02 Feb 2018

The function of commercial law

Commercial law is the body of law that governs business and commercial transactions. It is considered to be a branch of civil law. It deals with both private law and public law. Commercial law includes titles as principal and agent; carriage by land and sea; merchant shipping; guarantee; marine, fire, life, and accident insurance; bills of exchange and partnereship. It can also be understood to regulate corporate contracts, hiring practices, and the manufacture and sales of consumer goods. Many countries have adopted civil codes that contain comprehensive statements of their commercial law.

The function of commercial law is to allow, so far as it can, commercial men to do business in the way they want to do it and not require them to stick to forms that they may think to be outmoded.

Commercial law has developed rapidly over the years which mean there are many challenges for commercial contract law in the twenty first century and many areas of commercial contract law where the current law is unsatisfactory.

Modern commercial law has its roots in the lex mercatoria of the middle ages. Disputes back then were settled by special local courts, such as the courts of the fairs and boroughs and the staple courts, where judge and jury would be merchants themselves. These merchants would decide cases quickly and apply the lex mercatoria as opposed to the local law. The lex mercatoria was an international law of commerce. It was based on the general customs and practices of merchants which were common throughout Europe and was applied almost uniformly by the merchant courts in different countries. The lex mercatoria suited their needs, it emphasised freedom of contract and freedom of alienability of movable property. It was flexible enough to adapt to new merchantile practices. Most significantly of all, it was speedily administered by merchant courts which shunned legal technicalities and often decided cases ex axequo et bono. It was during this period that some of the most important features of modern commercial law were developed: the bill of exchange, the charterparty and the bill of lading, the concepts of assignability and negotianility, the acceptance of stoppage in transit and general average.

In the fifteenth and sixteenth centuries most of the business of the merchant courts was taken over by the Court of Admirability, which continued to recognise lex mercatoria. But in the seventeenth century the commercial jurisdiction of the Admiralty Court was itself taken over by the common law courts. As the merchant courts were by then defunct, the common law courts captured most of the nations mercantile legislation. In an attempt to keep that business the common law courts adopted some of the rules of lex mercatoria . but it was not until the late seventeenth and eighteenth centuries that the lex mercatoria was fully incorporated into the common law.

The development of commercial law through the common law led to a comples, and sometimes conflicting, mass of case law. In the nineteenth century there was a call for rationalisation of the law through codification. This process was achieved by an all embracing commercial code but throught the codification of certain defined areas of commercial law.

Primary and secondary legislation plays an important role in the regulation of commercial transactions. Traditionally, commercial legislation has been designed to give effect to the free will of the parties to a commercial transaction and thereby promote the free flow of trade. The codifying statutes of the second half of the nineteenth and early part of the twentieth century were designed to do this. But other, more recent, legislation has been of a much more intrusive character, designed to promote social and economic policies of the state rather then free will of the parties to a commercial transaction. Examples include recent banking and financial services legislation [1] , ever increasing consumer protection legislation [2] and those statutes regulating monopolies, restrictive trade practices and mergers [3] . Professor Schmitthoff described interventionist legislation of this type as forming a body of ‘economic law’ [4] 

In the seventeenth and eighteenth century the lex mercatoria was incorporated in to the national laws of Europe. This meant that commercial law in England and in other countries, lost much of its international character. However, in the second half of the twentieth century there has been a growing call for the harmonisation of the principles and rules of commercial law governing international transactions. European community Law is a separate legal system, distinct from, though closely linked to, national legal systems of member states. It has a profound impact on UK Law. Section 2(1) of the European Communities Act 1972 provides that directly effective EC Law must be recognised and enforced in the UK. It is now well settled that where there is a conflict between directly effective EC Law and national law, including Acts of Parliament, EC Law prevails [5] .

There have been calls for the codification of English commercial law. The modern advocates of codification want a comprehensive commercial code along the lines of the American Uniform Commercial Code. An English Commercial code would embody ‘a set of principles and main rules for a handful of key commercial transaction- sale, secured transactions, intermediated securities, and electronic fund transfer, and perhaps agency and suretyship guarantees, together with a set of general provisions that would be regularly reviewed and could be amended by some fast track procedure. Such a code would contain statements of principle and would not attempt to deal in detail with every problem that might arise in commerce. [6] 

The challenges for commercial law in the twenty first century consist of legal implications of new technology, the changing approach to dispute resolution and also the general shape of English commercial law.

The courts have shown an ever increasing readiness to look to patterns of judicial lawmaking in other legal systems for solutions to help resolve complex issues of legal policy. Law has to be constantly cultivated and regularly renewed. Common Law countries such as Canada and the United States have been able to keep their commercial law upto date and with energy and legal creativity which their academic and practising lawyers bring to bear to modernise and as well as keep under regular review their laws governing commercial contract transactions. [7] 

It is the fact that we do not have negotiable instruments and according to Proffessor Goode [8] there are whole areas of the law relating to commercial transactions on which we have virtually no legislation whatsoever, nothing on warehouse receipts, funds transfers, or payments systems nothing on indirect holdings of immobilised securities, and no upto date integrated treatment of documents of title generally. Professor Goode has a strong preference for a commercial code as he believes it has many advantages. It gathers together in one place the rules governing the major forms of commercial transaction and thereby makes the law accessible both to lawyers and laymen. At present we have to resort to textbooks. Helpful though they may be, they are no substitute for a code, for within a given subject they analyse each principle and rule separately, so that these are diffused across the entire work and are not available to the reader in one place as with the code. The very process of preparing a commercial code helps expose inadequacies and inconsistencies of the present law and provides an opportunity for commerce, industry and finance to identify weaknesses and to suggest what is needed to overcome them.

Other benefits of a reform and codification of commercial code are that transactions could be conducted more efficiently, legal rules would be much more susceptible to developing business needs then they are now and much time currently spent in digging for particles of commercial law and then arduously assembling them into a coherent principle would be saved. Despite the preparation of the code involving years of effort and money, Professor Goode believe this is the one thing that needs to be done in order to have a quality product and the price is worth paying.

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